Congress created Achieving Better Life Experience (ABLE) accounts in 2014. Before ABLE accounts existed, individuals with disabilities who were eligible for Medicaid or federal Supplemental Security Income were limited to a maximum of $2,000 in assets. These assets included bank savings accounts. There is good news for the disabled. Now that has all changed.
What is the New Dollar Allowance for ABLE Accounts?
ABLE accounts allow disabled people to have up to $100,000 in these accounts. This will not put their Medicaid or Supplemental Security Income at risk.
What About State Limits?
Each state must enact its own legislation to make these accounts available in that specific state. Several states have already done this or they are in the process of doing so.
What Do ABLE expenses include?
ABLE accounts are modeled after qualified state tuition programs. They sometimes are referred to as Section 529 plans. Although there is no tax benefit associated with contributions to the accounts, the earnings in the accounts accumulate tax-free. The accounts are also tax-free if used for qualified expenses. These expenses include: health care, education, legal, housing and transportation expenses. As a note of caution, qualified expenses do not include food, entertainment or vacations.
What Should I Know About Achieving Better Life Experience (ABLE)?
The accounts are available to individuals who became disabled before the age of 26. Once an account is established, anyone can contribute to it. This is provided that the sum of the contributions for the year does not exceed the annual gift tax exclusion. As of the date this article has been written, the annual gift tax exclusion is set at $14,000. These accounts are a less-expensive substitute for special needs trusts. Special needs trust have significant administration costs associated with them. If contributions exceed the annual gifting limit and $100,000 overall, a special needs trust will be required.
What is the Downside to an ABLE account?
There is no doubt that ABLE accounts do fill a need. Unfortunately, there are some downsides. This includes the current $14,000 per year limit on contributions; restrictions on using the funds for food, vacations and entertainment. Next, there is the fact that if the beneficiary passes away, the remaining funds cannot be left to siblings or others.
What Happens to the Money Once My Disable Relative Passes Away?
Federal law allows State Medicaid agencies to collect against the estate first. This means the state is allowed to paid back for the Medicaid services a beneficiary has received during their benefit season. Why? Because the disabled individual opened the ABLE account. Also, the state uses this money by putting it back in the medicaid fund to help other people with disabilities.
All unpaid disability expenses that qualify will be given first shot. This is even before the Medicaid claims. However, Medicaid is reimbursed next. Any assets that are left over in an ABLE account, after qualifying expenses or Medicaid, will go to the beneficiary’s estate. However, we caution you not to count on funds being available. In light of healthcare and nursing home costs, especially for a disabled individual, it is likely there will be very little money available for an inheritance.
Need a Better Understanding of ABLE?
Are you interested in more information about how to set up an ABLE account or how it works? Call Alex Franch, BS EA at 781.849.7200. Alex is an enrolled agent with the IRS and he has the knowledge to help you work through these difficult to predict situations. You may also visit our One Source Financial Center or our Integrated Financial Services page to learn more about our multi-disciplined approach and the difference it can make in your financial life.
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